Pension Performance Review

In the midst of dealing with the big pension plan changes discussed last month, the regular business of operating the plan and administering its affairs must continue. It’s probably fair to say that we all appreciate the reliable receipt of our mid-month pension ‘cheque’ even as the manner of its governance remains unsettled.

One piece of regular business is reviewing the performance of those tasked with managing the pension fund’s financial resources (currently totaling around $1.6-ish billion). The fund’s assets are allocated in varying amounts across 8 or so financial management firms each operating in accordance with a specific investment
mandate. Some of the firms will be familiar to readers (CIBC, Fidelity Investments, among others) whilst others not so much (Baillie Gifford, Fiera Capital, etc.).

Each manager’s investment mandate is selected from mandates approved by the University’s pension governance body (currently the Board of Regents but soon to be the newly instituted administrative body for Joint Sponsorship). Approved investment mandates and their respective allocations include Canadian equities (25%), US equities (21%), international equities (10%), bonds and fixed income investments (25%), real estate (8%), and mortgages (8%) with the remaining 3% held in cash and short term investments. Specific performance objectives are set for each mandate (for example, US equity managers must exceed the S&P 500 by 1% and rank in the top third of their “comparable universe”).

It falls to the Performance Review Subcommittee of the PAC to review the performance of each of the investment managers. The performance objective(s) for each mandate forms the basis for each firm’s review. The Subcommittee is supported in its work by an extensive performance analysis report prepared by the pension plan’s external advisor (Halifax-based Eckler Consultants and Actuaries). Performance review outcomes range in gradations from achieving the designated performance objective (an outcome rewarded by the manager’s continuance) down to being terminated (in a way painfully similar to a Trumpian “you’re fired”). Over the years most managers avoid the latter (although not all). The latest performance review saw no firings a la Trump but one management firm was negatively assessed as a “Watch”.

The Performance Review Committee completed its work for the latest round of performance reviews in June 2018. The necessity of reviewing an investment manager’s performance transcends pension plan governance models so we should expect these sorts of reviews to occur as frequently under Joint Sponsorship as they did under Sole Sponsorship.

MUN Pension Plan

Some of the big numbers as 2017 came to a close

Estimated amount needed for a fully (100%) funded Pension
plan meeting all its obligations to all plan members $1.81 billion
Market value of of funds in the plan $1.58 billion
Shortfall: unfunded pension liability $0.23 Billion
Pensioners, survivors, and eligable pensioners 2,336
Active pension plan members (currently making pension plan contributions) 3,860
Ration of active pension plan members to total pensioners (reader exercise)